The Uncertain Economic Spring

Everyone complains about the economy, but it’s the high-growth distributors actually doing something about it.

Most distributors, manufacturers and reps were hoping that by the time their tulips started to bloom in 2013 they would be enjoying some decent growth.

But like a winter that won’t quite let go, the sluggish economy is hanging around for longer than anyone wanted. It’s tough to say if the electrical market is entering a new era of low single-digit growth or if it’s just trying to digest an uneven mix of market drivers. One thing is for sure — uncertainty now dominates the market. Housing starts are up, but non-residential construction is down in many markets, particularly in the public construction arena, where government spending cuts may be sparking double-digit declines (year-to-year) in office and commercial construction.

The early responses to EW’s annual Top 200 survey reflect this uncertainty, and many Top 200 distributors are looking at flat or meager growth of less than five percent. The few earlybird respondents that see 2013 sales growth of 10% or better are blessed with big construction projects in their markets like data centers, oil and gas, or utility expansion. Others are using recent acquisitions and branch expansion and a focus on green project work or retrofits to drive growth. One thing is clear with the high-growth distributors — they aren’t banking on their day-to-day business to carry the day. They are investing in new market opportunities or in their operations. It’s just not the type of economic climate where a distributor can meander through life and expect business as usual to fuel future growth.

Rock Kuchenmeister, company president, K/E Electric Supply, Mt. Clemens, Mich., said in his response for the Top 200 survey that he expects 12% growth in 2013 by re-energizing his sales focus on customers and markets who were formerly thought to be on the “fringe” of the company’s territory and comfort levels.

“We’re finding renewed success with local government entities and facilities,” he wrote. “We are also enjoying substantial success with customers who were formerly thought to be out of our service area. Often those customers are doing projects well within our previously defined territory, we just didn’t realize it.”

Distributors from outside the mainstream electrical channel are also investing big-time in their operations to drive growth, too. Take Fastenal Inc., the Winona, Minn.-based MRO distributor. While many other distributors logged 2012 growth of around 5%, the company increased its sales 8.5% last year to $3.1 billion by opening an astonishing 80 new branches (after opening 122 locations in 2011) and installing an additional 13,642 industrial vending machines loaded with its MRO supplies in customer locations. The company now operates 25,447 industrial vending machines and installed 4,352 new machines in 1Q 2013. It also opened 11 new locations in 1Q 2013.

While many full-line electrical distributors are hesitant to invest in an online storefront, W.W. Grainger Inc., Lake Forest, Ill., has been all-in on e-commerce since the mid-1990s, and the success of its online storefront at www.grainger.com is legendary in the distribution world. While e-commerce already accounts for 30% of company sales — $2.7 billion in 2012— the company hopes to drive that percentage to 40%-50% by 2015 with the help of its new smartphone mobile app, now averaging 3,200 downloads per week. The company says more than 25% of the new mobile transactions are will-call orders placed for product pickup at the nearest Grainger branch.

Yes, the economy is still a bit soft. But unlike attempting to change the weather, there’s all sorts of things you can do to drive sales in an uncertain economic climate.

Correction

In the April issue’s Newswatch section (p. 7), EWerroneously reported that the new Border States Electric branch in Greeley, Colo., was the company’s first branch in Colorado. The company has had a branch in Denver for some time. Our apologies to the folks at Borders States Electric for the error.